OECD forecasts Vietnamese economy to grow by 6.5% this year

During the launching ceremony of the report, Vincent Koen, acting deputy director of the OECD’s Economic Country Studies Branch, said the country’s strong economic growth has led to remarkable social progress made over recent years, whilst its economy has been resilient to shocks.

Further reforms aimed at improving the business climate, spurring on competition, and expanding the pension and welfare system can be seen as necessary for the nation to continue on its path of economic and social progress and to fully benefit from its deep integration in global trade, he added.

The report outlines that the country is one of the few places in Southeast Asia to have avoided a recession caused by COVID-19 thanks to its capable management of the crisis coupled with sound economic policies. It is important now to work on reforms aimed at ensuring continued economic and social progress whilst keeping the economy resilient to both external and domestic challenges.

It notes that despite an increase, inflation remains well below levels recorded in many OECD countries, standing at 4.3% over the year to February for headline consumer price inflation, against 8.8% on average in OECD countries. At the same time, the openness of the national economy leaves it exposed to geopolitical uncertainties and potential supply chain disruptions.

The report highlights that the country has seen a dramatic reduction in poverty over the past three decades, bringing down its poverty rate from 80% in 1992 to 7% just before the COVID-19 crisis. Per capita GDP relative to the OECD average more than doubled over the past two decades, approaching 25%.

Nevertheless, for the years ahead it is likely that a rapidly ageing population will start to weigh on economic growth and public finances, particularly as the nation will need to expand its low public pension coverage.

To continue lifting living standards it will be necessary to raise tax revenues to fund growing spending needs, including greater social protection coverage, while simultaneously boosting labour productivity and business dynamism and reducing labour market informality, according to the report.

Experts assessed that digital transition is also crucial to Vietnamese future prosperity. Digital innovations can be transformative for emerging markets as they can be applied and diffused more quickly than advances made in more traditional sectors. The Vietnamese Government aims to expand the digital economy to account for 30% of GDP by 2030, compared to approximately 7% of GDP at present, by improving quality infrastructure, e-government, and accessibility to 5G services.

Think thanks underscored the importance of investing more in technical and vocational education to improve workers’ digital skills and opening telecommunications markets to foreign investors, in particular by accelerating the adoption and implementation of new legislation to reduce barriers to foreign entry and easing restrictions faced by foreign ownership.

The report, produced in conjunction with the Asian Development Bank, says reform priorities should also include easing administrative burdens on firms in a bid to improve competition and level the playing field between state-owned enterprises and private businesses.

Economists emphasized that the country should also seek to take bolder policy action aimed at achieving net zero emissions, through stronger investment in renewables and energy efficiency.